Day Trading Encyclopedia
Stock Watch Lists
Stock Watch Lists
Finding Stocks to Watch
A stock watch list is like a food menu for that trading day. It should contain active stocks that are ripe to trade based on technical or fundamental news catalyst. A trader can have several watch lists, however, there should be two very specific watch lists, the general and active watch list. The general watch list may contain hundreds of stocks composed of stocks the trader is familiar with and has traded in the past. Narrowing down from the general watch list, every trader should prepare an active stock watch list prior to the market open every trading day. The watch list may contain stocks that the trader has been tracking the previous day(s) or week(s) that may be setting up for a technical move. It is important not to put too many stocks on the watch list and end up spreading yourself too thin. Every trader should have a handful of stocks they are comfortable trading. This core basket of stocks should be added to the watch list when they are active.
Criteria for a Good Stock Watch List
Any stock on your active watch list should be one that you are comfortable trading. It should contain a combination of core trading stocks and new gapper and dumper stocks. It can also contain peer stocks to the gapper dumpers. This general watch list can be kept on a market minder or quote matrix. Stocks that are ripe to trade can be put on the active watch list, which shouldn’t be more than 10 stocks. It’s best to have widely traded core stocks in different sectors. A sample core stock list could be Apple, Inc. (NASDAQ: AAPL), Netflix (NASDAQ: NFLX), Microsoft (NASDAQ: MSFT), Boeing (NYSE: BA), Disney (NYSE: DIS), Morgan Stanley (NYSE: MS), Las Vegas Sands (NASDAQ: LVS), Macys (NYSE: M), Aetna (NYSE: AET), First Solar (NASDAQ: FSLR), Starbucks (NASDAQ: SBUX) and Budweiser (NYSE: BUD). You will notice that NYSE stocks tend to trade thinner than NASDAQ stocks. Make sure to familiarize yourself with their behavior.
The best stocks to trade have high volume, liquidity and most importantly movement. This is why momentum stocks get the most action and volume. Stocks that have a fresh news catalyst tend to generate the highest volumes daily. The most impacting news items are earnings reports, guidance and warnings. When the news creates a price gap up, called a gapper, or a price gap down, called a dumper, it can be a watch list candidate. However, if it is an unfamiliar stock, it is best to watch for the first 30 minutes. Many gappers end up being tough to trade due to the thinner liquidity, which makes for wide spreads and too much slippage for those who are not used to it’s trading behavior.
Active watch lists should include stocks that are showing significant gaps up or down based on company or sector specific news. Sympathy stocks to gappers and dumpers should also be included. For example is Wynn Casinos (NASDAQ: WYNN) gaps up then Las Vegas Sands (NYSE: LVS) and MGM (NYSE: MGM) should also be on the active watch list as sector leaders tend to move the rest of the sector.
Scanning for Stocks
Most brokers have scanning or stock screening modules on their platforms. The active stocks and gapper and dumpers are the main stocks to watch for adding to the day’s active watch list. To screen for more stocks, especially during the day, trader’s can subscriber to an active stock screener add-on from your broker platform or a third-party vendor. The basic platform scanners should have a screen for most active stocks, leading price/percentage stock gainers and decliners and largest volume stocks. A minimum average daily volume of 1 million shares should be a filter for liquidity purposes. The larger the volume, the more liquidity there tends to be.
Third-Party Stock Scanners
Check on the third-party add-on scanning programs available through your broker platform first, since discounts may apply.
Most scanners have numerous pre-set screens including specific pattern scanners that scan for classic patterns like triangles, 1-2-3 patterns, candlestick patterns to moving average and momentum indicator crossovers. Each of these can be added to each other to generate customized real-time scans like ‘Significant up move greater than 2% in 15-minutes’. It also provides excellent momentum scanners that will find stocks complete with pre-designed pattern screens as well as the ability to use your own filters.
Finviz.com offers a free stock screener that users can also set specific parameters and also search for stocks meeting select pattern criteria like wedges, triangles, head and shoulders patterns. Stocks hitting intra-day new highs and lows are candidates worth watching.
Stockfetcher.com is a handy browser-based scanner that generates scans for candlestick formations and patterns like cup and handles, triangles and various patterns. It has a convenient feature that e-mails scan results to you at a designated time every day.
Pitfalls of Stock Scanners
Stock scanners are not the end all. Traders need to be careful not to take the scans literally and hop right into a trade. Scanners generate potential trading candidates but still require the trader to carefully analyze the set-up and qualify if the trade is favorable. Scanners can often generate results after the set-up has been played out so it’s important not to chase the entries.
With scanners, the number of trading candidates can expand multi-fold to a point where it’s very easy to spread yourself too thin among way to many stocks. The lack of focus can often result in overtrading. Frustration can result in even more overtrading and chasing entries. It’s very important that traders understand that scanners only provide suggestions and discipline must be administered in being selective even among the tightest filtered scans. Usually when a pattern triggers, it will generate a multitude of stock candidates to sort through. Since timing is crucial, one has to build up the skill set to sort through these quickly and thoroughly. Start with the most familiar names and be selective and only engage when the set-up meets your criteria and time the entries properly.